Subprime Mortgage Collapse Under Federal Probe

Reuters

Monday, 5 May 2008 | 5:42 AM ETReuters

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Federal prosecutors in New York have formed a task force together with other government agencies to examine the collapse of the market for risky home loans, a spokesman for the U.S. Attorney's Office in Brooklyn said Monday.

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The group is being run out of the federal prosecutors' office in Brooklyn, said Robert Nardoza, a spokesman for the office, formally known as the U.S. Attorney's Office for the Eastern District of New York.

The task force is working with representatives from the Federal Bureau of Investigation, the U.S. Postal Inspection Service, the U.S. Secret Service, the Federal Deposit Insurance Corp. and the U.S. Securities and Exchange Commission, Nardoza said.

He said the task force is focusing on mortgage activity in the New York area, where many financial services firms are located or do business.

It is working with representatives from the New York State Banking Department, New York City's Department of Investigation and the Office of the New York State Attorney General.

The task force is also working with federal prosecutors in Manhattan, Nardoza said.

"A lot of the districts in the country are taking similar action," he said. This task force was formed "to focus on the problem in our district," which includes the New York City boroughs of Brooklyn, Queens and Staten Island, as well as Long Island.

The task force is being led by Assistant U.S. Attorney Jonathan Green in Brooklyn and had its first meeting last week, the spokesman said.

News of the task force was first reported in Monday's editions of The Wall Street Journal.

The U.S. Attorney in Brooklyn, Benton Campbell, told the newspaper that the group will look into potential crimes including mortgage fraud by brokers, securities fraud, accounting fraud and insider trading, but he did not discuss any specific investigations.

The FBI has said previously that it is investigating 19 companies for potential fraud in the U.S. home mortgage industry.

Working with other federal agencies in a Justice Department mortgage fraud group, the bureau is probing potential accounting fraud, insider trading and deceptive sales practices.

So far, the FBI has publicly acknowledged the identity of only one company involved in its probe, Doral Financial .

A former Doral treasurer has been indicted for investment fraud in a case brought by federal prosecutors in Manhattan. He has denied the allegations.

An FBI spokesman, asked about the Brooklyn investigation, said the scope and focus of the federal probe launched last year were unchanged.

He said the agency was participating in 37 regional mortgage fraud task forces around the United States.

Authorities have said that the largest U.S. mortgage lender, Countrywide Financial, is also under FBI investigation, but the FBI has declined to comment and Countrywide has said it was unaware of any investigation.

When the FBI disclosed its industry investigation, major investment banks Goldman Sachs Group, Morgan Stanley and Bear Stearns said the government had asked them for information.

Beazer Homes said last year it had received a federal grand jury subpoena related to its mortgage business.